Manufacturers' Mandates Driving Changes In Indirect Lending

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Providers of indirect lending are bracing for change in the face of NCUA's recent risk alert regarding third-party, subprime indirect lending and mandates coming down from auto manufacturers to the captive finance companies, according to some indirect lending vendors.

"With the risk alert, some are nervous about this because credit unions may decide they need to bring their indirect lending in house," Dan Chaney of Teres Solutions told The Credit Union Journal at NAFCU's annual meeting here.

In its alert, NCUA said it had seen a sharp increase in problems with indirect lending at credit unions, primarily subprime indirect loans being handled by a third party.

Another indirect lending provider noted that while some CUs may respond by bringing otherwise successful third programs in house, it could dissuade other credit unions from getting into the market in the future.

"It could have a chilling effect, where credit unions who maybe were thinking of getting into indirect lending decide not to because now they think it's too risky," he said.

In the meantime, Chaney added, relative new-comers to the indirect lending platform are starting to gain traction in the competition with veteran providers as a result of a policy change for some of the captive finance companies.

"Some of the automakers are mandating that the captives must use a particular platform if they want to receive the incentives the manufacturers are offering," he said. "It's an interesting trend to watch."

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